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IRS Normal Retirement

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In response to an inquiry from Congressman Nick Rahall (D-WV), on October 10, 2014, the Internal Revenue Service issued IRS Information Letter "2014-0030" confirming that the IRS intends to modify provisions of the 2007 Normal Retirement Age (NRA) regulations as applied to governmental plans, and that the effective date for governmental plans will apply to annuity starting dates that occur in plan years beginning on or after the later of (1) January 1, 2015 or (2) the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins on or after the date that is 3 months after the final regulations are published in the Federal Register.

As the Information Letter explains, since proposed regulations modifying the 2007 NRA regulations have not yet been issued, “it is highly unlikely that the first part of the effective date would ever apply.” In short, the 2015 effective date is effectively moot.

The IRS Information Letter also confirms that “the governmental plans community will have the opportunity to provide comments” on the proposed modifications to the NRA, as they would apply to governmental plans, prior to their being issued in final form and thus triggering the delayed effective date.

The 2012 IRS Notice (Notice 2012-29, issued on April 30, 2012), to which the Information Letter refers, indicated that the NRA regulations will be modified for governmental plans such that if the plan does not provide for the payment of in-service distributions before age 62, then it will not be required to have a definition of normal retirement age at all. Furthermore, if such a plan does have a definition of what constitutes a normal retirement age, it will not be necessary for the definition to meet the requirements of the 2007 regulations. This would appear to do away with any concerns as to normal retirement ages being based in whole or in part on years of service for plans that do not provide in-service distributions before age 62.

While this seems to represent a major victory for governmental plans, there are nevertheless a number of missing details in which the devil may still be lurking. For example, how, exactly, does the IRS define an in-service distribution? What about return-to-work programs in the public sector? Could these programs be seen by the IRS as in-service distributions in certain instances? Also, what about part-time work? And if a plan does provide in-service distributions before age 62, can it still have a normal retirement age based in whole or in part on service?

There are a number of these and other concerns that are left unanswered. Therefore, the NRA issue has yet to be effectively put to bed, and the ultimate application of any regulations in this area to governmental plans will depend in large part on what the proposed modifications to the regulations look like once they are issued for comment. Currently, it is unclear when that might occur.

****WVEA will include additional information on the IRS Normal Retirement as it becomes available